One Deal Closes, Another Case Opens: Competition Bureau Brings Another Challenge to a Consummated Merger
On December 1, 2021, Canada’s Competition Bureau (“Bureau”) filed an application before the Competition Tribunal (“Tribunal”) under the merger provisions (section 92) of the Competition Act challenging GFL Environmental Inc.’s (“GFL”) recent acquisition of Terrapure Environmental Inc. (“Terrapure”), which GFL completed on August 17, 2021. Under the Competition Act, the Bureau can challenge a merger at any time up to one year after its substantial completion. The Bureau’s challenge is particularly noteworthy because it serves as another example of a recent line of challenges by the Bureau to completed mergers.
Whereas historically merging parties have typically insisted that some form of Bureau approval – in the form of an advanced ruling certificate (“ARC”) or a no-action letter (“NAL”) – be obtained before a deal would close, more recently, companies have shown a willingness to close once the statutory waiting period associated with the Bureau review has expired, irrespective of whether the Bureau has ‘blessed’ the deal. In many cases, there may be reasons to do so, such as confidence in the strength of their substantive arguments, the immediate realization of significant synergies, and/or agreed-upon divestitures in the parties’ contractual covenants.
However, merging parties involved in contentious transactions need to be prepared for a more litigious Bureau, even post-consummation. While post-closing merger challenges have been rare historically, more recently the Bureau has demonstrated an increased willingness to challenge transactions post-closing. In its application to the Tribunal, the Bureau submitted that prior to the transaction, Terrapure was GFL’s closest competitor in the industrial waste services and oil recycling services markets in Western Canada and that it had determined that the merger is likely to result in increased prices and reduced service quality for the collection and processing of industrial waste in certain regions of Western Canada. Based on GFL’s press release acknowledging the challenge, the benefits of implementation without first obtaining approval may have outweighed any divestiture order down the line regarding the contested service locations, which together accounted for only C$30 million, or less than 10% of Terrapure’s total revenues in 2020. Though it is unclear why the Bureau refrained from challenging the transaction pre-closing (the transaction was pre-notifiable under the Competition Act), the Bureau concluded that a section 92 application was warranted.
The GFL/Terrapure challenge comes not long after a post-closing challenge that also involved the oil and gas industry. In June 2019, the Bureau brought a section 92 application opposing Thoma Bravo’s acquisition of Aucerna, a supplier of software, including reserves software, to oil and gas companies. Despite the Bureau’s concerns and unwillingness to grant a NAL, Thoma Bravo completed its transaction on May 13th, 2019, upon the expiration of the statutory waiting period. One month later, the Commissioner filed an application under section 92, alleging that the transaction would substantially lessen competition in the delivery of reserves software to oil and gas producers in Canada and sought an order requiring the divestiture of one of the reserve software products. On August 20, 2019, a consent agreement was registered with the Tribunal, under which Thoma Bravo agreed to sell its own reserves software business.
Additional cases demonstrate that the Bureau, under Commissioner Matthew Boswell, is not adverse to bringing challenges to completed mergers. Just this past summer, again in the waste industry that services oil and gas companies, the Bureau brought an 11th hour section 92 challenge, along with an application for an interim injunction, to prevent Secure Energy Services Inc. (“Secure”) from closing its acquisition of Tervita Corporation (“Tervita”). The application for an interim injunction failed, as did a midnight hearing before the Federal Court of Appeal. Within minutes of the appeal decision, the transaction closed. Despite its failed attempt to obtain an injunction, the Bureau is continuing with its section 92 application, which will now be heard post-closing – further demonstrating its readiness to litigate in such cases. For more information on the Secure/Tervita matter, please see our previous bulletin detailing the particular facts of the case.
Moreover, on December 19, 2019, the Bureau filed a section 92 application for a divestiture order requiring Parrish & Heimbecker to sell either its own grain elevator in Saskatchewan or its newly acquired grain elevator in Manitoba, which it had acquired from Louis Dreyfus Company nine days prior. The Commissioner argued that the acquisition substantially impacted competition in the region, which would result in higher prices for wheat and canola farmers. The Tribunal has not yet released its decision in the case.
Finally, though no section 92 application was brought, the Bureau required WESCO International Inc. (“WESCO”) to enter into a consent agreement with the Tribunal in August 2020, following the June closing of WESCO’s acquisition of competing electrical products distributor, Anixter International Inc. (“Anixter”). Though the Bureau had articulated concerns regarding the merger and had not concluded its review, WESCO proceeded to close upon the expiry of the statutory waiting period on June 22nd, 2020. The Bureau subsequently engaged the merged entity in negotiations to address the alleged substantial lessening of competition, registering a consent agreement that required WESCO to divest several business lines post-closing. Each of these cases show that the Bureau is not reticent to use section 92 litigation, or at least the threat of it, even where parties elected for other reasons to close their transaction.
This increasingly litigation-ready posture in merger review by the Bureau is consistent with its new (and enhanced) enforcement strategy, which will be bolstered by a significantly increased budget in coming years. The federal government has earmarked an additional $96 million in funds for the Bureau over the next five years and $27.5 million per year thereafter, giving the Bureau greater resources to absorb litigation costs where parties look to close over Bureau concerns. In his speech to the Canadian Bar Association’s competition law conference where he lamented the lack of competition in Canada, the Commissioner of Competition detailed his plans to increase competition enforcement, listing increased litigation capacity to support a litigation-focused approach as a priority item. The Bureau is organizing to take on more complex matters and, in the Commissioner’s words, is prepared to make reviews “less predictable for merging parties.”
In light of the foregoing, we recommend that clients and their advisors take a careful look at whether a transaction genuinely poses a competition law issue in Canada before developing contractual risk allocation and a Bureau engagement strategy. There may well be reasons for merging parties to close when they are legally able to do so, even where the transaction raises significant competition issues. However, they need to be alive to the fact that when the Commissioner warns them that they are closing at their own risk, he means it.